3 Market Predictions for 2014—Searching for Alpha for January 2014

By Ben Warwick

Commentary January 02, 2014 at 05:36 AM

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In 2013, we saw the best year for stocks since 1995, but it's time to look ahead to the New Year. Here are three predictions for the next 12 months.

Prediction 1: The Bears Declare Victory
At the first sign of a 5% correction, the market bears will announce the end of the stock market run. But like virtually all the warnings from timers over the last few years, stocks will regain their footing and embarrass the pessimists.

With the economy clicking and an accommodating Federal Reserve, we think equities will gain ground in 2014.

Prediction 2: Alts Get Even More Popular
If used properly, liquid alternative funds can potentially mitigate stock market risk, allowing advisors to create more diversified client portfolios.

The cover story in the January issue of Investment Advisor goes into more detail, explaining the logic behind the increasing acceptance of this new asset class.

Prediction 3: Look for More Leverage
With rates still historically low, companies are borrowing increasing amounts of money. That has caused a spate of credit downgrades, according to Bloomberg, even though 15% of bond offerings have been used to fund shareholder payouts instead of shoring up operations.

I expect balance sheet quality to decline, but the uptick in the economy should keep trouble from brewing, at least in the short term.